No Wonder We’re Stuck in a Slog

October 31st, 2013 at 7:04 pm

I know I’ve been going on about fiscal drag a lot lately, but a) it’s been historically large, as I’m about to show, b) it’s a big reason we’re stuck in the current econo-slog, and c) I’m not nearly as repetitive as the folks who go on so loudly and incorrectly about how badly we need to cut our near-term deficits.  Moreover, as the picture shows, they’re winning.

The Treasury today released the data for the fiscal year 2013 budget deficit, which amounted to $680 billion, or 4.1% of GDP, down about $400 billion from last year’s deficit, which was 6.8% of GDP.  The 2.7 percentage point drop came from 1.5 ppts higher tax receipts and 1.2 ppts lower outlays (both relative to GDP).

That’s the largest one year decline in the budget deficit since 1969.  The deficit is down 6 percentage points of GDP since 2009—the largest four-year decline since 1950.  We’re engaged in a level of budget austerity that would make a European policymaker proud.


Source: OMB, Treasury

I probably don’t have a lot of budget hawk readers by now, but just in case, let me assure you that as a card-carry employee of the CBPP, I claim solid street cred re sustainable fiscal policy.  I am, in fact, the founder of the CDSH club (cyclical dove, structural hawk).  You don’t reduce your budget deficit, especially not this quickly, until the economy has much more velocity than is currently the case—when firms are hiring, wages and incomes are rising (and not just at the top), unemployment is falling for real (not due to labor market withdrawal), investors stop sitting on their mountains of cash reserves, and there’s a bit more inflation afoot.  Nor do you jam the Fed’s aggressive monetary policy with fiscal headwinds.

It’s Halloween night and I’m sitting in my home office with ghouls and goblins outside and a black cat snoozing on the sofa.  If I were more creative, I’d whip up a costume as a mindless, hair-on-fire deficit alarmist and go out there and scare the crap out of everybody.

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6 comments in reply to "No Wonder We’re Stuck in a Slog"

  1. Fred Brack says:

    For your costume, just borrow a suit and tie from Pete Peterson.

    • Fred Donaldson says:

      “For your costume, just borrow a suit and tie from Pete Peterson.”

      Who would want to wear a wrinkled suit bought with a 15% income tax rate?

    • Jmm11b says:

      Rather than make a cynical no substance response to a comment you disagree with why not offer some/any facts (not opinions)to support what you disagree with.

      We can listen to better one line slams from pundits and politicians, don’t waste the readers time with your drivel.

  2. wkj says:

    I think we will find that this year’s decrease in the deficit is reversed next year. This is partly a feedback effect of slower economic growth. Another factor is that the “surge” in federal (and some state) income taxes due for calendar 2012, but paid this fiscal year is due to a one-time bunching of capital gains and dividend income in 2012 to avoid the 2013 rate increase from 15% to 23.8% (with the new Medicare tax for those with adjusted gross income over $250,000).

    Will you be happier with that kind of a deficit increase?

  3. Dick Swartley says:

    Deficit Devil, Halloween 2013

    On Halloween night 2013, many people are especially scared of that old Deficit Devil.

    The Deficit Devil that the Republicans tell us is going to drag us straight to hell if we don’t quit (right now!) feeding that Devil with runaway outa-control federal spending on unnecessary stuff – on stuff like keeping hungry old folks and little kids from starving, and poorer people from getting medical help, and little kids getting some pre-school learning, and funding decent public education for K-12 and college, and putting some cops back on city streets so they’d be safe to walk and the cops could eliminate the the gangs, and getting unemployed job seekers back to work, and paying living wages to those who do have some kinda job, and maintaining and rebuilding collapsing public infrastructure like bridges and roads and water and sewer systems and electric grids, and funding research that will save lives and seize the technology future for the USA – and all that other unnecessary runaway wasteful government spending stuff that Republicans say makes us all moochers dependent on taking unfair tax money from the deserving rich.

    On this night for Devils, lots of us are especially scared of that old Deficit Devil that the Republicans say is so scary right now. Ooogabooga! Lights out, doors locked, and guns locked and loaded for that scary Deficit Devil.

    Oops, I got no guns.

    But, no matter. The Deficit Devil is fiction created by the propaganda machine of the super-rich to keep taxes down for the super-rich and to shut down government regulation of their power. So I’m not scared of that phony Deficit Devil. We can handle him when the timing is right, once we use smart public policy to get people back to work at decent wages and our economy working toward its potential. But I know that we have to get together to fight the power of the super-rich if we are to hold on to a good government that serves the public interest, and not the interests of the super-rich. Good luck to me, and good luck to anyone who is scared by this Deficit Devil crap.

  4. expr says:

    How about a stratified CDSH
    Top 1-2% are having a boom/bubble: raise their taxes and cut expenditures on their behalf: financial transaction tax, get rid of carried interest exemption. If we can cap lifetime welfare how about capping mortgage interest exemption and ag subsidies
    Next 10-20% are doing OK (some of the above will hit them a bit)
    Next 30-40% are in a recession: do some of the tings mentioned in the previous reply (as deficit causes)
    Bottom 30-40% are in a depression: increase SNAP, unemployment insurance and EITC